SBP Amendment Act: Unsubstantiated claims in MoF slide deck
Based on the WhatsApp leaks of the pages, SBP cannot provide export refinance or TERF/RFCC/LTF
This is hopefully my last post on the topic. I hadn’t wanted to do a post on SBP Amendment Act as it was covered extensively but when I saw the clause that everyone had ignored, I churned out a post.
It was unprofessional on SBP’s part to release SPECIFIC PAGES of the memo over WhatsApp. If they want to seek public opinion, hold a public meeting or release a draft document to prevent controversies that have arisen since. To quell the controversies, the Ministry of Finance has now published the slide deck explaining what is going on.
I will just focus on the clause that I covered in the previous post. This is page 11 of the slide deck.
In contrast, the clause in the Act cannot be any clearer
It says:
SBP cannot undertake any quasi-fiscal operations or development finance activities. Development finance activities are defined as “any activity undertaken to promote any priority sector such as agriculture, SMEs, housing and other sectors”. Ironic that the very sectors mentioned in this definition are what you call underserved sectors such as housing, SMEs, agriculture, etc.
There you have it. In black and white. No two ways about it. SBP cannot undertake any activity to promote any priority sector. The restriction is not limited to quasi-fiscal activities (I don’t know if “quasi-fiscal” is defined in the Act anywhere). It clearly mentions “ANY ACTIVITY”.
Thus, the below circular that SBP released today, instructing banks to promote low-cost housing finance will be in contravention to the aforementioned clause once the Act is passed.
Moving on, the MoF finance slide deck states that refinance activities to support underserved sectors will still be allowed.
The “underserved sector” isn’t defined anywhere in the Act pages we have seen. Will the export sector and industrial sector that are availing the maximum refinance (Rs.400 billion and Rs.100 billion respectively as per SBP 2020 Annual Report) be deemed as underserved? I don’t think so. Thus we can safely assume that export refinance, LTF, TERF, RFCC will not be provided by SBP as per the amended Act.
If there is any doubt, below please see the clauses 17(2)(a) and 17(2)(d) from the current SBP Act 1956 under which refinance is provided for export refinance and TERF/LTF/RFCC. Those who disagree that these clauses aren’t under which SBP provides refinancing to these sectors should pick up the phone, call the banks and confirm under which clause are those refinancings provided.
Let’s see what the new Act says about these clauses.
As per the amended Act, these clauses stand deleted. Thus SBP will have no authority to extend export refinance or TERF/LTF/RFCC if the amendment is passed as is.
Summary
Only the act has legal standing. SBP is only authorized to engage in activities that are mentioned in the Act.
The Ministry of Finance slide deck has no legal standing and is serving as an explanatory document.
It cannot be any clearer that the amendments in the SBP Act prohibit SBP from undertaking “ANY ACTIVITY” to support priority sectors.
SBP cannot provide export refinance and LTF/TERF/RFCC.
Thus on Slide 11, MoF is making claims which are not substantiated by the pages of the amended Act that have been shared on WhatsApp.
At the end of the day, it is a policy decision whether SBP wants to engage in export refinancing or TERF. If SBP doesn’t want to do refinancing, fine with me. Just let’s not fool people by making wrong claims in a slide deck about what is allowed or not as per the Act.
It would have been better if some competent legal/compliance team had vetted the amended Act and the MoF slide deck.
